3. Investments & Funding

2025-26 Review

Global markets shrugged off trade policy concerns to deliver strong returns during 2025. Equities increased by 19% with the UK outperforming. Government bonds delivered broadly positive returns, supported by expectations of future rate cuts. The Fund in aggregate returned 7.5% during 2025 rising to £6,300m, with a funding level of 108%[2].

A number of strategic changes were implemented including increased allocations to index-linked gilts and multi asset credit. The strategic allocation to local impact assets increased from 3% to 5%. At the end of the year £180m had been committed and £70m invested across the priority areas of renewable infrastructure, affordable housing and SME financing. 

The Fund also made further progress on its climate targets. By the end of 2025 the Fund’s equity portfolio was 60% less carbon intensive than the global equity index, exceeding its decarbonisation targets ahead of time, faster than required to meet net zero by 2045.

Consistent with ‘Fit for the Future’ proposals, the Fund will become one of nine shareholders of its new pool (LPPI) on 1st April 2026. Significant work was undertaken during the year in readiness for the asset transition and subsequent wind down of the Brunel business.

Triennial Valuation

The triennial valuation was struck based on the Fund’s financial position on 31 March 2025 and showed a surplus of £339m compared with a deficit of £238m in the last (2022) triennial valuation. Average employer contribution rates for future service reduced from 18.6% of pay to 16.3%.

The Fund’s Funding Strategy Statement was updated in March 2026 to reflect these changes, setting out the Fund’s valuation and funding plan to objectively balance affordability for individual employers and solvency of the Fund. In terms of setting contributions, the relationship of the expected investment return on assets compared to the rate of expected future increases in benefit payments (i.e. CPI inflation) is critical. The inclusion of a Surplus policy sets out how any surplus will be utilised to reduce employer rates and the inclusion of a surplus reserve to manage contribution sustainability.

Objectives 2026-27

The Fund aims to achieve predictable employer contributions, through a growth-oriented investment strategy at acceptable risk, seeking to achieve financial returns which exceed the Fund’s actuarial assumptions. Focus areas include the following:

Implementation of New Pooling Arrangements

  • During 2026-27 the Fund will work with our new pool LPPI, to embed investment management arrangements and related governance and operational arrangements.
  • Assets will transition to LPPI and subsequent work will focus on reshaping the portfolio, to drive operational efficiencies and implement the new investment strategy (see below).
  • The Fund will also review its framework for governing investment decisions to ensure efficient and effective decision making, aligned with Fit for the Future arrangements.

Investment Strategy

  • A review of the investment strategy will be conducted during 2026-27, following the triennial valuation, to ascertain the optimal strategy to deliver the funding plan.
  • The Fund will work with LPPI to review risk and return objectives, asset allocation and risk management framework.

Local Impact Portfolio

  • The Fund will continue to deploy capital into its local investments across its three sub-sectors: renewable infrastructure, affordable housing, small company (SME) funding.
  • The Fund will commence work with LPPI, WECA and other delivery partners to identify opportunities that meet specification for this portfolio.

Natural Capital portfolio

  • The Fund will work with LPPI to further define the objectives for the strategic allocation to Natural Capital and develop a specification to support identifying opportunities. This work is expected to commence in second half of 2026.
  • This will be managed by LPPI which is developing solutions to meet the needs of all nine LGPS funds in the pool.

Employers

  • The focus during 2026-27 will be on managing employer admissions and exits. We will ensure scheme exits are managed compliantly and with actuarial integrity.
  • The Fund undertakes annual covenant checks on employers to assess their specific risks – required to identify employers facing potential funding issues – so we can work with them to manage pension costs and minimise financial risks. We will review and adjust this process in consideration of updated TPR guidance.

[2] estimate of 31 December 2025